Farming groups have rejected the government’s plan to tax basic foodstuff and agricultural inputs, saying this would hinder the agricultural sector from creating jobs.
Through the Kenya Private Sector Alliance, the lobbies said proposals in the VAT Bill 2012 seeking to levy 16 per cent Value Added Tax (VAT) on their products would undermine their competitiveness in other markets.
“The VAT will translate to higher prices for agricultural and food items and fall heavily on the poor who spend most of their incomes on food,” said Mr Kariuki Nduati, chairman of Kenya National Federation of Agricultural Producers (KENFAP).
The food items are exempted from VAT while agricultural inputs are zero-rated.
While producers of exempt goods or services neither charge nor reclaim VAT, those of zero-rated items are entitled to recover VAT on their costs.
Under pressure from Kepsa to simplify VAT to boost taxpayer compliance and improve administration, the Treasury has sought to scrap all concessions, subjecting, among other things, food and inputs to tax.
The proposals reinforced by Finance minister Njeru Githae in the Budget Speech last month list milk, wheat, maize, livestock feed, agrochemicals, ginned cotton and fertiliser as some of the items that face VAT.
On Tuesday, Kepsa officials said simplifying the tax did not mean another extra burden on consumers.
“We are not prepared to accept punishment just because of the difficulty encountered in administration of refunds linked to zero-rated items,” Mr Gerald Masila, Executive Director of Eastern Africa Grain Council, said.
The introduction of standardised VAT, Mr Masila added, would fall heavily on consumers who will now bear multiple charges on value chains including grain transport.
Wrong time
Two weeks ago, the IMF assistant director for Africa Dominico Fanniza asked Parliament to scrap all the exemptions in VAT to promote equitable sharing of tax burden.
David Nyameino, an agricultural economist, said the proposed reforms risked leaving Kenya as the only place in the world where farmers get punished for producing.
“This is the wrong time to introduce a punitive legislative measures on farmers. It will definitely reduce the yield per acre,” said Mr Nyameino. The sector contributes 25 per cent of GDP and employs more than 70 per cent of rural folk.
“We want a simpler tax regime where incentives reach intended beneficiaries,” Said Mr Patrick Kimani, of the Livestock producers Association.
